Must Read Research

Also featuring commentary from Global Economic Weekly

March 24, 2024

Candace Browning

Candace Browning, Head of BofA Global Research

This week we discuss the shift to Emerging Markets (EM), play-by-play from the 2024 Global Industrials Conference and 30 breakthrough technologies that can change the game.

 

Michael Hartnett points out that the shift into Emerging Market (EM) and eurozone equities is more remarkable, with movement into EM equities the most in 7 years.

 

Similarly, the net percentage expecting higher global economic growth and profit growth is the highest since January ’22. U.S. commercial real estate is seen as the most likely source of a credit event and higher inflation is seen as the biggest tail risk, a change from January, when geopolitics and hard landing were bigger concerns.

 

The view from over 75 companies at the 2024 BofA Global Industrials Conference was broadly constructive.

 

China demand was a glaring weak spot noted by European industrial companies. Aerospace & Defense companies reported strong order momentum. U.S. industrials emphasized positive demand sentiment but lingering excess inventory. Most U.S. industrial companies expect pricing power to offset higher labor inflation. U.S. construction companies see better housing and infrastructure support into 2025. The commentary was consistent with an improving earnings outlook. In parallel with the conference, Chief Global Quantitative Strategist Nigel Tupper thinks risks of an earnings downturn are melting away.

 

Did you know just 3% of companies created almost 100% of global net wealth in the past 100 years?

 

Disruption impacts markets and understanding which breakthroughs are on the cusp of commercialization has never been more important. Haim Israel and our Thematic Investing team declare artificial intelligence (AI) is now at a mass adoption inflection point, citing 30 breakthroughs to focus on. It’s not just about the impact of AI itself but how it intertwines with other technologies. AI is now being leveraged as a tool for other innovations, such as drug discovery and mining resources. The team even proposes we could soon live in a world where we go from a scarcity of resources to one of abundance. Perhaps the best news of all is that these investments in automation, AI and tech are reducing prices across the board, and increasing returns.

Featuring Commentary from Global Economics Weekly

Claudio Irigoyen

Claudio Irigoyen, Head of Global Economics, BofA Global Research

How far can doves fly?

More than 10 central banks met last week around the world, showing that monetary policy decisions are becoming gradually less synchronized. Most central banks in developed economies remained on hold, while in emerging economies we had a mixed bag of cuts and hikes.

 

The Fed surprised with a dovish message, dismissing the recent inflation surprises, validating somewhat higher inflation risk premium. The significant upward revisions to growth did not lead to similar declines in unemployment or much higher inflation. When putting everything together, the Fed's view behind the dovish tone seems consistent with a positive supply-side narrative.

 

The Bank of Japan scrapped NIRP (negative interest rate policy) and YCC (yield curve control) as telegraphed, and we expect more hikes in October and April '25. The Reserve Bank of Australia remained on hold, but removed the reference to further tightening, and we expect the first cut in February.

 

In Europe, the Swiss National Bank delivered a surprise cut, while Bank of England and Norges remained on hold, with a dovish and hawkish bias, respectively. We expect the first Bank of England cut in August and the first Norges cut in September.

 

In Emerging Markets, we had a mixed bag of doves and hawks too. Mexico started the easing cycle cutting 25bp (basis point) as expected, while Brazil delivered 50bp and committed to another 50bp. In EMEA, the Central Bank of Türkiye delivered a large surprise, hiking the policy rate by 500bp ahead of the local elections, while Czech National Bank delivered 50bp as expected. In Taiwan, the Central Bank of the Republic of China surprised by hiking the policy rate by 12.5bp to 2%.

Must Reads & Global Economic Weekly will be off for the Easter holiday returning April 7th.

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